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Palm may buy back software spin-off PalmSource, according to rumors that have caused a 20 percent spike in the company's stock price, BargainPDA says. Unclear is how such an acquisition would affect PalmSource's focus on Linux mobile phones.

PalmSource has struggled for the last year, after failing to interest PDA and phone vendors in Cobalt, its attempt at a multi-tasking successor to the venerable Palm OS. Long the marketshare leader for PDA OSes, Palm OS was supplanted in 2004 by Microsoft Windows CE in 2004, according to Gartner.

At the same time, Palm OS benefits from a robust third-party software ecosystem and a tremendous amount of legacy vertical market software — the single most important factor in PDA buyer considerations, according to Handango.

Another bright spot for PalmSource has been industry reaction to the news that the company would embrace Linux, transitioning its Garnet and Cobalt APIs to libraries running on top of Linux. PalmSource executives Michael Kelley and John Cook said that the news actually increased interest in Cobalt, as well as doubling the number of attendees expected at the company's annual developer conference this year.

PalmSource announced a restructuring in July, with interim CEO Patrick McVeigh saying that projects not directly related to Linux mobile phones would be cancelled or put on hold. The company additionally announced a partnership with MontaVista at LinuxWorld earlier this month.

Some industry pundits said early on that PalmSource's embrace of Linux could hurt Palm (recently renamed “Palm” from “PalmOne”), a hardware company marketing Palm-brand handheld devices. Palm's recent LifeDrive, the company's first PDA equipped with a hard drive, runs PalmOS Garnet, not Linux. However, an impending version of its highly popular Treo PDA phone could be based on Windows Mobile, not Palm OS, according to rumors.

PalmSource did not reply by publication time to our invitation to comment about how an acquisition by Palm would affect its Linux mobile phone software stack plans.

PalmSource completed a $16M acquisition of Chinese Linux phone designer China MobileSoft in February of this year.